Transient Chaotic Behaviour in a Hierarchical Economic System

The dynamical behaviour of a two-level hierarchical system representing a varying number of variable sized firms in a competitive market is examined. It is shown that the behaviour of each level of the system exerts an important degree of control over the dynamics of the other level. In particular, the behaviour of the higher level is influenced by the presence or absence of a potential for chaotic behaviour in the lower level. In turn, the actual appearance of chaotic behaviour in the lower level depends on the behaviour of the higher level of the system. Specifically, the presence of a potential for chaotic behaviour in the lower level tends to stabilize upper-level dynamics in such a way that the chaotic behaviour is not actually observed.